Roundup: S.Korea freezes policy rate at record low amid expectations for further cuts

South Korea's central bank on Friday froze its benchmark interest rate at a record low of 1.75 percent, keeping a wait-and-see mode for two straight months amid expectations for further rate cuts.

Bank of Korea (BOK) Governor Lee Ju-yeol and six other monetary- policy board members decided to keep the 7-day repurchase rate on hold. The bank cut the rate by a quarter percentage point in March after lowering it by 25 basis points in August and October last year each.

The decision was not made unanimously, boosting expectations for further rate cuts. One policymaker opposed to the rate freeze in favor of an additional rate cut for two straight months.

"Three factors were (mainly) considered in the May rate-setting decision," Governor Lee told a press conference, citing the improved consumer sentiment and the asset market recovery that may signal an economic recovery.

The governor also mentioned rapid growth of household loans and rising volatility in the financial market, which could destabilize the economy under the record-low interest rate.

The BOK said in a statement that the economy showed a moderate recovery on improved domestic demand that offset weak demand from foreign countries, forecasting the continued moderate recovery caused by the previous monetary easing.

The bank said that the country's economic growth would stay below its potential, estimated at the mid-3 percent, for an extended period of time, indicating a record-low interest rate for the time being.

The rate freeze was in line with market expectations as the central bank was forecast to see the effect of previous rate cuts amid improving economic indicators.

According to a survey of 106 bond market experts by the Korea Financial Investment Association, 93.4 percent of respondents predicted the rate freeze citing global economic recovery and South Korea's upbeat first-quarter GDP despite concerns over sluggish exports.

South Korea's real GDP expanded 0.8 percent in the first quarter from three months earlier, after rising 0.3 percent in the fourth quarter of 2014.

Reflecting the downbeat fourth-quarter growth, the BOK revised down its 2015 growth outlook to 3.1 percent in March from 3.4 percent estimated three months earlier. It was far lower than the finance ministry's forecast of 3.8 percent.

The finance ministry said in its monthly economic assessment that positive signs emerged thanks to low oil prices and higher housing prices, which would lead to improved sentiment among consumers and companies and offset negative factors such as the weak Japanese yen trend.

Retail sales slid 0.6 percent in March from a month earlier, but private consumption gained 0.6 percent in the first quarter from three months earlier. The April retail sales were expected to rebound due to strong demand for cars and vehicle fuels.

Domestic car sales climbed 2.8 percent in April from a year earlier, with sales of gasoline and diesel expanding 8.7 percent in the month. Sales at department stores grew 1.5 percent last month, and credit card usage jumped 15.3 percent in April.

Facility investment was little changed in the first quarter on a quarterly basis, but construction investment jumped 7.5 percent.

Housing prices rose 0.4 percent in April from a month earlier, indicating a housing market recovery caused by low interest rates and eased regulations on mortgage financing.

Despite the improving economic data, expectations remained for further rate cuts on the back of sluggish exports, which account for about half of the South Korean economy.

"If the BOK does not cut rates in May, we would expect it to at least signal a move in coming months," Kwon Young Sun, a senior economist at Nomura in Hong Kong, said in a report before the rate- setting decision.

The country's exports tumbled 8.0 percent in April from a year earlier. The pace of export slide got faster from 0.9 percent in January to 3.3 percent in February and 4.3 percent in March each. For the first four months of this year, the exports sank 4.3 percent compared with the same period of last year.

Kwon expected the exports to slide 12 percent in May on a yearly basis, representing the largest contraction since the 2008 global financial crisis. The BOK would not respond directly to currency moves, but the bank would take action to downside risks to the economy, the economist said. Endi